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Timing the market

Timing the Market: Should You Invest in Dips?

Timing the Market: Should You Invest in Dips?

This is one question most investors ponder during a market downturn. However, how do you figure out whether the market has reached a bottom? This blog covers whether you should try to time the market and wait for a correction to buy.

A buy on dips strategy is employed by investors to purchase stocks when the market has corrected or experienced a sudden setback. The philosophy underlying this strategy is that the market will eventually recover and it is a good time to buy fundamentally sound stocks when it has corrected. The market falls seen in the 2008 Lehman crisis, pandemic, and various geopolitical events serve as excellent examples of buying on dips, which paid off as the markets eventually recovered and reached all-time highs.

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However, it’s important to always remember that timing the market is extremely difficult, even for the most seasoned investors. To do so, you must be an avid market follower, conduct thorough research, and have long-term conviction. Some investors even combine technical analysis with fundamental analysis to time the market. The effort required to follow these steps is relatively high, especially for individuals who are not full-time market participants.

A better strategy would be to stay invested long-term and avoid short-term market fluctuations. Especially for retail investors, it is prudent to sail through a downturn and make the most out of it via mutual funds – i.e. by regularly investing small amounts over the long term in a Systematic Investment Plan (SIP).

In SIPs, you need not worry about the market situation. Keep investing to stay true to the principles of consistent investing and let wealth creation happen with the power of compounding. This strategy helps in reducing the impact of volatility on your portfolio and provides a sense of financial stability as well.

Investing in a SIP is a contrasting approach to buying when the market falls, and is suitable for those who want to avoid acting upon short-term fluctuations and prefer allocating small amounts consistently for their long-term goals.

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To sum it up, whether you should buy on dips or opt for an SIP depends on various factors, including your expertise in markets, risk appetite, and investment horizon.

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